Pro forma income statementThe marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.52 million. Interest expense is expected to remain unchanged at $32,000, and the firm plans to pay $65,000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, is attached along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components.

a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016.

b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.

c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why.

Breakdown of Costs and Expenses

Cost of goods sold
Fixed cost	$216,000
Variable cost	685000
Total cost	$901,000
Operating expenses
Fixed expenses	$39,000
Variable expenses	76000
Total expenses	$115,000

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Metroline Manufacturing Income Statement for the Year Ended December 31, 2012
Sales revenue	$1,391,000
Less: Cost of goods sold	901000
Gross profits	$490,000
Less: Operating expenses	115000
Operating profits	$375,000
Less: Interest expense	32000
Net profits before taxes	$343,000
Less: Taxes (rate = 40%)	137200
Net profits after taxes	$205,800
Less: Cash dividends	64000
To retained earnings	$141,800